Performance-based pay, including commission payment, is a common part of many companies’ compensation strategies, with 75% using it to boost performance and reward success. However, there is ongoing debate about the potential disadvantages of commission-based pay in the workplace. Employees receive a base salary plus a commission based on the sales they make. For instance, an employee might have a base salary of $40,000 per year plus a 10% commission on sales. Decide what you want your commission structure to look like with employees. Is 5% sufficient if they’re successfully upselling and bringing in new business?
Therefore, make sure to thoroughly consider how potential commissions will affect your employees’ interactions and, ultimately, your customers.
If you’re concerned about a company’s commission structure, make sure in your interviews and when networking to ask thoughtful questions—such as “What is the commission structure like for this role?
Unlike traditional jobs that come with fixed salaries, commission-based positions often offer the potential for unlimited earnings.
Neglecting these will harm long-term success by reducing your clients’ trust.
The tool helps managers align rewards with performance ratings and individual contributions.
In case you want a view of the complete picture to make your decision, here are some of the potential disadvantages of commission-based work.
The pros and cons of commission-based pay
In most cases, an employee must be paid a gross wage or salary in addition to their commission pay. However, in some cases, an employee’s earnings may come solely from commission, calculated from their total sales or performance over each pay period. Commission pay is a type of variable compensation where employees earn based on their performance, typically tied to the volume or value of sales they generate.
Create a record-keeping system for commission-based sales
This can be a great perk if you have other commitments outside of work or if you simply want the freedom to take a day off when you feel like it.
How can businesses implement this pay structure effectively while maintaining a healthy work environment?
At Salesonomics, we have extensive experience in developing the right strategy for your commission-based pay and fixed salaries in business-critical roles.
This hybrid model, prevalent in sectors like sales, blends a guaranteed base salary with commissions determined by the value and frequency of deals closed.
Let’s discuss how to understand and implement commission-based pay effectively.
Think about where you see yourself in the future and what financial path will help you get there. Too much emphasis on commission might lead to undue pressure or unethical sales tactics. How can businesses implement this pay structure effectively while maintaining a healthy work environment? Remember, what does commission based mean the goal is to incentivize performance without compromising quality or workplace morale. Commission payment can lead to higher earnings for top performers, but it also means less stable income. Industry, company rules, and your sales skills also affect which option works best.
How to Succeed in a Commission-Based Role
The third and final tip is to constantly review the balance to ensure it is a profitable deal for the company and that employees feel valued. That being said, commission-based pay is common in commercial roles, and our candidate survey “The Sales Landscape 2023” shows that 88% of participants appreciate a salary with variable components. Our survey also revealed that the pension plan was important to the participants.
Why is commission-based pay common in the sales industry?
Perhaps there are specific products or services you want to grow—ensure that these are more valuable to your employees. Consider the various sales aspects, prioritize them, and use this information when making your decision. When a business has specific targets to hit or a revenue metric that needs to be met that day, week, or month, this can trickle down to employees. Even in the easiest example of a retail business that has a sales goal per day (think of a bookstore, for example), this is a broader goal that focuses your employees. Your employees, no matter your business’s industry, can develop goals around customer engagement and their own percentage of close/win sales to keep themselves on track.
“We negotiated a sliding scale where the commission percentage adjusts based on performance,” she recalls. When you think of commission, your mind immediately goes to a sales-type role (think of a retail salesperson trying to get you to buy that extra pair of jeans). Commission is popular in most sales jobs because their responsibilities are heavily tied to a company’s revenue goals. Having the opportunity to earn commission—sometimes a hefty amount—motivates those individuals to hit or get close to their quarterly or yearly goals. Commission is additional compensation that’s earned based on job performance.
Types of commission pay
How your commission-based pay looks will directly influence the culture that is formed. By offering low base salaries and high individual commissions, you are likely to build a more individualistic culture. People with high drive and a desire to influence their income will likely thrive. Consider the type of employees you want to attract and, the culture you want to build, and make your decision accordingly. Incorporate payroll tools like Homebase to take any stress out of paying your employees their commissions.
